Scandinavian Working Papers in Economics

Knut Wicksell Working Paper Series,
Lund University, Knut Wicksell Centre for Financial Studies

No 2015/6: Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth

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SANDRA E. BLACK: Knut Wicksell Centre for Financial Studies, Lund University
PAUL DEVEREUX: Knut Wicksell Centre for Financial Studies, Lund University
PETTER LUNDBORG: Knut Wicksell Centre for Financial Studies, Lund University
KAVEH MAJLESI: Knut Wicksell Centre for Financial Studies, Lund University

Abstract: Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors. We also examine the role played by bequests and find that, when they are taken into account, the role of adoptive parental wealth becomes much stronger. We find very little evidence that education or earnings of parents or children are important drivers of the intergenerational wealth relationship between children and their adoptive parents. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth.

Keywords: Intergenerational mobility; nature versus nurture; portfolio allocation

JEL-codes: G11; J01; J13; J62

44 pages, July 1, 2015

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